Theme 2.3 Flashcards
What is the calculation for Gross Profit?
sales revenue - cost of sales
What is the calculation for Operating Profit?
gross profit - fixed overheads
What is the calculation for Net Profit?
operating profit - finance and tax
What is the calculation for Gross Profit Margin?
Gross profit/ sales revenue x 100
What is the calculation for Operating Profit Margin?
Operating profit/ sales revenue x 100
What is the calculation for Net Profit Margin?
Net profit/ sales revenue x 100
What does Corporation tax mean?
The tax on the profits of a company
What are dividends?
Annual payments made to shareholders
What is a fixed overhead?
The indirect costs that have to paid however the business is performing
What is the calculation current ratio?
Current assets/ current liabilities
what is the calculation for Acid-ratio test?
Current Assets - Stock/ Current liabilities
What is liquidity?
The ability of a business to pay its bills on time which required having significant cash in the bank/ working capital
What is working capital cycle?
How long it takes for a complete cycle from cash out to cash in from a customer payment
What is administration?
When directors of a business feel forced by the threat of insolvency to hand over management control to administrator who may try to sell the business, or close it down and sell off the assets
What is a liquidity ratio?
Assesses whether a business has sufficient cash or equivalent current assets to be able to pay its debts
What is the calculation for current ratio?
Current assets/ current liabilities
What is the calculation for Acid-test ratio?
Current assets - inventory/
Current liabilities
What is credit control?
Establishing credit limits for new customers
What are three external causes of business failure?
- Change in technology
- New competitor
- Economic change
What are three internal causes of business failure?
1.Marketing failure
2.Financial failure
3.Systems or operations failure
What are two reasons that new businesses may fail?
1.No demand for the idea
2.External shocks
What is overtrading?
A business that has a sudden increase in demand for their products therefore increase capacity i.e. employing more staff. If demand isn’t sustained then the business may be left with a very high cost base
